Trump Vows to Uphold Dollar Dominance as He Prepares for Presidency at the White House
“We will maintain the US dollar as the world’s reserve currency, even though it is under significant threat. Numerous countries are departing from the dollar. If they choose to abandon it, they won’t transact with the United States — we are prepared to impose a 100% tariff on any goods they send.”
These remarks were made by then-President-elect Donald Trump during a campaign rally in September before his November election victory. Although Trump’s second term won’t commence until early next year, the economic ramifications of his new administration on African economies are already becoming apparent. Following the election results, for instance, the US dollar saw a sharp increase in value against African and other emerging market currencies.
This surge can be attributed largely to Trump’s anticipated protectionist economic strategies. His plans to increase existing tariffs by an additional 10% on most foreign products and impose tariffs of up to 60% or more on Chinese goods are expected to elevate the costs of imported goods in the US, leading to heightened inflationary pressures and necessitating that the Federal Reserve maintains higher interest rates.
Higher interest rates would likely result in a stronger US dollar, as traders are drawn to higher yields associated with US assets, thereby increasing the dollar’s value compared to African currencies. This scenario — characterized by weaker African currencies and a more robust US dollar, coupled with a potentially extended period of higher interest rates — would significantly impact African nations’ capacity to repay their substantial dollar-denominated external debts, making them considerably more expensive in local currency terms. This would complicate financial strategies for heavily indebted nations such as Angola and Kenya, hindering their ability to sustain high levels of expenditure through borrowing in capital markets.
Advocates for Dedollarisation in Africa
Nevertheless, it remains uncertain whether Trump will carry out his threat of sanctions against countries attempting to reduce their dependence on the US dollar. Despite existing “dedollarisation” initiatives being at a nascent stage, Trump’s threats will need to be carefully considered by African economies contemplating this path.
Zambia is one nation actively working to lessen its dollar reliance. Last year, President Hakainde Hichilema met with the vice-president of the Bank of China, Lin Jingzhen, in Lusaka to explore opportunities for increasing the usage of the Chinese renminbi (RMB) throughout southern Africa.
As China serves as Africa’s largest trading partner and principal creditor, many influential figures in Zambia and across the continent view enhancing the renminbi’s use as a natural progression. Similarly, Kenya’s President William Ruto has advocated for utilizing local currencies for trade within the continent instead of the US dollar, as African nations strive to establish themselves as an independent trading bloc.
On a global scale, the BRICS coalition of emerging economies — including South Africa, Egypt, and Ethiopia — has expressed a desire to create a BRICS currency and develop alternative financial systems to rival the Western-dominated Bretton Woods framework. At the recent BRICS summit in Kazan, members agreed to establish a “BRICS Clear” payment system aimed at facilitating settlements and clearing between BRICS nations and partner countries, effectively reducing reliance on the US dollar for such transactions.
These initiatives are largely driven by the desire to reconfigure the global economic power balance to more accurately reflect today’s multipower landscape. African nations, along with numerous other emerging economies, aspire to diminish America’s influence, which some critics argue has wielded the dollar’s reserve status as a means to pursue its foreign policy objectives through sanctions.
Are the Threats Empty?
Can Trump effectively compel African nations to abandon their dedollarisation efforts through heightened punitive measures like increased tariffs? Philip Pilkington, an investment expert based in London, contends that such actions would only intensify Africa’s urgency to eliminate reliance on the dollar for international trade.
“Dedollarisation is already underway, largely due to the excessive use of sanctions by the United States. Any effort to intensify sanctions will merely accelerate the process of dedollarisation,” Pilkington asserts.
“This isn’t a serious proposal, and I doubt it will be actualized.”
Charlie Robertson, head of macro strategy at FIM Partners in London, also expresses skepticism about Trump’s commitment to these plans, particularly as they contradict some of his other stated economic objectives.
Although Trump has previously suggested that the dollar losing its reserve status would be akin to “losing a war” due to the political and economic repercussions, he has simultaneously maintained that the dollar’s strength in global forex markets is problematic. He has blamed this strong dollar for inflating the costs of US manufactured goods, making them less competitive compared to lower-priced alternatives from China and elsewhere, and for exacerbating America’s enormous trade deficit.
Advocating for a weaker dollar while simultaneously boosting demand for it by compelling emerging market economies to continue utilizing it seems contradictory. Indeed, Robertson informs African Business that Trump’s proposal to levy tariffs on nations pursuing dedollarisation is “perplexing” because “it contradicts his objective of a weaker US dollar — if he wanted a weaker dollar, he should welcome dedollarisation.”
Implications for Trade
However, Robertson also posits that Trump’s intention to impose substantial tariffs on foreign goods could force countries to seek alternative trading partners, thus potentially transacting in different currencies—this could diminish, although not completely eliminate, the dollar’s dominance.
For instance, if Trump opts not to renew the African Growth and Opportunity Act (AGOA), which grants 32 Sub-Saharan African nations duty-free access to the US market for thousands of products, it could result in a greater proportion of those goods being sold in alternative international markets and possibly settled in different currencies.
“An intriguing perspective for me would be if Trump’s tariffs lead to an increased share of global trade outside of the US,” Robertson states. “That might incentivize more countries to consider using the euro or renminbi.”
As with many of Trump’s proposals, it remains to be seen whether he will actually implement the threatened extensive tariffs on countries looking to distance themselves from the US dollar. Given his lack of focus on Africa during his first term in office, it is conceivable that he might not closely monitor any initiatives undertaken by African leaders in this regard.
What is more certain is that Africa, along with the global community, is facing a more fragmented trading environment that could complicate macroeconomic conditions for at least the next four years.